In the history of mankind, attempts to improve living conditions have only very recently superseded the struggle for survival. In all civilizations, progress has been exceedingly slow, with abrupt, unexpected downfalls. These were concomitant to natural disasters, epidemics and wars. Today, we can estimate that only one fifth of the world population enjoys a standard of life that can be considered acceptable.

The yardstick commonly used to measure standards of living is “income per person”. We first show how income reflects the result of economic activity (section 1). 1 We then discuss whether income per person constitutes a proper gauge for the measurement of society's welfare (sections 2 and 3).

Income as a measure of economic activity

Fundamentally, nations can benefit, in the long run, only from what they have been able to produce. In turn, the amount produced within a given time span (for instance one year) can be measured from at least three perspectives.

First, we can consider the types of produced goods and services; these can broadly be distributed between consumption goods or services on the one hand, and investment goods on the other. Consumption goods and services are produced for the direct use of consumers. Investment goods (machines, factories, transportation infrastructure, etc.) are produced in order to provide ultimately, at some later date, consumption goods or services. Adding consumption to investment would measure a nation's total activity if the nation had no relations with the outside world. If this is not so, two major corrections should be introduced: first, one must add to consumption and investment all exports of goods and services; second, all imports should be deducted: indeed, consumption, investment and even exports include imports of goods and services, and imports are no part of a nation's activity.